House Republicans prepare to unveil new 3 percent solution

House Republicans say they have plans in the coming months to repeal a tax that would withhold a portion of payments to companies.

“We will move quickly this fall to repeal this burdensome requirement and relieve construction contractors, medical providers, manufacturers, farmers, and many others providing goods and services under government contracts of the uncertainty the impending law is creating,” House Majority Leader Eric Cantor (R-Va.) wrote in a memo to the Republican caucus on Aug. 29.

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Cantor said the tax would be detrimental on both sides of the tax. It would cause “accounting burdens on governments and potentially harmful cash flow disruptions for contractors and subcontractors across all sectors,” he said.

Postponed earlier this year, the 3-percent withholding tax is not scheduled to take effect until 2013. It has been pushed back continually since it was enacted in 2006.

The Internal Revenue Service is paying more attention to the tax's effects too. After hearing from the contracting community and agencies about the administrative burdens to comply and its effects on companies, IRS officials scheduled a hearing for Sept. 12 to gather more input on the issue .

At least one industry trade group has signaled its agreement on the Republicans’ initiative.

Phil Bond, president and CEO of TechAmerica, said the tax represents bad policy. It undermines efforts to modernize government, he said.

“This impending law is harmful to government suppliers and costs more to implement than it collects in revenues," Bond said in a statement. "In particular, it hinders small government contractors who can’t afford to front the federal government 3 percent of earnings while on the job,” he added.

Some industry experts also say the tax is unnecessary since the Obama administration has used IT to get a handle on improper payments. In 2010, administration officials introduced to track work to reduce improper payments and get ideas from the public on how to further reduce them.

House and Senate Republicans and Democrats also have introduced bills through the years to nullify the tax, but none has become law.

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

Reader Comments

Mon, Sep 26, 2011 SP Mayor Summit Point, WV

Political expediency outstrips ethical and moral responsibility and accountability. Both sides of the aisle speak with forked tongues and seem to exhibit selective dementia as suits their purpose. The failure of the 4th estate to present the totality of the facts is disenheartening.

Wed, Aug 31, 2011 nitpicker

Funny, but this "tax"--which isn't, you know, a tax--was itself a "Republican initiative," passed in 2005 with 98 percent of Republicans voting for it and only 5 percent of Democrats. Funny how Cantor leaves out the fact this "burdensome requirement" was one he voted for and funny that every press outlet (including this one) seems willing to go along with the notion this is some Democratic boondoggle.

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